PAF-Like Mechanism for the Oil and Gas Sector

Pilot Auction Facility for emission reductions in the oil and gas sector
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Executive Summary 
The World Bank Group has developed the Pilot Auction Facility for Methane and Climate Change Mitigation (PAF), currently tested for methane emission reductions in landfills, animal waste and wastewater projects. The PAF delivery model offers a price guarantee for future emission reductions determined through a bidding process, and as such leverages private sector financing and ensures the efficient use of public funds for climate financing. Replication and scale up potential, beyond the sectors already tested, are large, and this note summarizes the results of an analysis of the suitability of applying a PAF-like instrument to spur investments in flare and methane emission reductions in the oil and gas sector.[1]
A number of empirical studies have shown that flaring and methane emissions contribute a large part of global greenhouse gas emissions, but at the same time the potential is significant for emissions reductions at low or no net costs. Results from the analysis presented in this note suggest that the PAF delivery model can help remove barriers to realize these reductions. The suitability for a PAF-like mechanism has been assessed for a large number of project categories in the flare and methane emission sectors and is summarized as follows:

  • For flare reduction projects the best candidates are small and medium scale projects which capture gas and either produce electricity locally or bring the gas to the market.
  • Suitable project categories within methane emission reductions are primarily leak detection and repair programs (LDAR) and investments in various equipment, such as pneumatic devices and pumps, gas engines and compressors.

The World Bank Group invites stakeholders to present their feedback and particularly comment on the set of questions presented at the end of the note.

[1] Current contributors to the Pilot Auction Facility include Germany, Sweden, Switzerland and the United States.  This study, funded by the World Bank Group, is intended to explore the potential of a PAF-like mechanism in the oil and gas sector.